Appellate Court: trucking companies must pay state taxes on "pass-through miles"

By Jonathan Bilyk | Oct 4, 2013


A Missouri-based trucking company and all other interstate trucking companies moving freight through Illinois will need to pay taxes based on how many miles they drive in the state, whether or not they actually pick up or drop off freight in Illinois, an appeals court has ruled.

In an opinion filed Sept. 30, a panel of the First District Appellate Court held that the Illinois Department of Revenue (IDOR) was correct in ordering Witte Brothers Exchange Inc., of Troy, Mo., to pay more than $136,000 in unpaid taxes and penalties for failing to include in its calculation of taxes owed the number of miles its trucks only passed through the state.

The opinion was delivered by Justice Jesse Reyes. Justices Mary K. Rochford and Shelvin Louise Marie Hall concurred.

The ruling overturned a judgment rendered by Cook County Circuit Judge Robert Lopez Cepero, who had found in favor of plaintiff Witte Brothers Exchange in the company’s tax dispute with the state.

Witte Brothers sued the state in March 2011, after a tax audit and subsequent review determined the trucking company had improperly calculated its tax liability to the state.

The 2009 audit of Witte Brothers’ 2005, 2006 and 2007 tax returns found that the trucking company owed $77,821 in unpaid income taxes, $35,386 in interest and $23,185 in penalties because it didn’t properly report the number of “pass-through miles” its trucks had traveled on Illinois roads.

Pass-through miles are counted as miles driven through the state by trucks that have no deliveries to either pick up or drop off within the state’s borders.

Under Illinois law, trucking companies are required to pay taxes based on income they may have derived while engaged in transportation of goods in Illinois, whether or not the company is based in the state.

The IDOR determined that pass-through miles should be taxed as income earned, even though the trucks make no scheduled stops in the state.

The trucking company in February 2011 paid the taxes the state said was owed, but did so under protest.

The company then filed suit, asking the court to find the state erred in including the pass-through miles in its tax liability calculations, and to find that such calculations were also unconstitutional under the Commerce Clause.

The trial judge sided with the trucking company, entering a summary judgment on their behalf in February 2012, and ordering the state to refund the company’s earlier tax payment.

The state appealed a month later, and the trial judge’s order was stayed, pending appeal.

On appeal, the justices overturned the trial court’s decision.

The appeals panel determined that Cepero erred in siding with Witte Brothers’ contention that trucking pass-through miles should be treated similarly to airlines’ flyover miles. Under case law, airlines have  been exempted from having to pay state income taxes if their aircrafts merely flew over Illinois, and did not take off or land at airports in the state.

The trucks, the justices said, have a “physical presence” in the state, and use state roads and other state services to earn income moving goods from one place to another.

“Plaintiff’s trucks travel through Illinois on its roadways,” the justices wrote in their opinion. “This is true whether or not plaintiff is picking up or delivering goods in Illinois.

“By utilizing the state’s infrastructure and roadways, plaintiff’s property and employees are physically present in Illinois. Plaintiff is also conducting the economic activity of providing shipping services involving travel through Illinois.”

With this in mind, the justices said trucking pass-through miles are legally akin to “flow-through miles” of oil or natural gas through pipelines. Illinois case law has already established that such “flow-through miles” are taxable, even if the hydrocarbons do not originate or terminate in Illinois.

The appellate court opted not to address the question of the constitutionality of the law under the Commerce Clause, as the trial court did not address the question, nor did the parties raise the issue during the lower court hearing.


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